Senator wants administration to pick up the pace on sole-source rule

July 5, 2010by Robert Brodsky

The chairwoman of a Senate oversight subcommittee is frustrated by slow implementation of an eight-month-old law that requires closer scrutiny of noncompetitive contracts.

In October 2009, President Obama signed the fiscal 2010 Defense Authorization act, which includes a provision (Section 811) that requires procurement officers governmentwide to justify in writing their use of sole-source contracts in excess of $20 million. An agency supervisor would have to sign off on the justification, which would later be made public. But, as the calendar turns to July, and Congress moves to enact the fiscal 2011 version of the Defense bill, the sole-source stipulation remains in a holding pattern.

"We passed a law on the books that all sole-source [contracts] of more than $20 million must have justification," said Sen. Claire McCaskill, D-Mo., chairwoman of the Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight, during a hearing on Wednesday. "There has been a delay in implementing law."

Office of Federal Procurement Policy Administrator Dan Gordon told McCaskill the delays were caused by the need to conduct outreach with the tribal community. Executive Order 13175, which President Clinton signed in November 2000 and Obama reauthorized last year, requires agencies to consult and collaborate with Indian tribes when developing federal polices with tribal implications.

Tribal officials said those consultations have yet to begin and a schedule of meetings has not been finalized. Once the outreach is completed, it still could take several months before the recommendations of tribal officials are documented and a final sole-source rule is implemented through a change to the Federal Acquisition Regulation.

The Office of Management and Budget said the consultations should begin soon. The Defense bill required the FAR rule to be finalized by the end of April.

"We want that outreach to be fair, but we also want it to be expeditious and to move forward very promptly," Gordon testified. McCaskill, however, argued that tribal outreach is unnecessary. "I urge you to put a burner under this effort and make it go quickly," she said. "I admire that you want to do outreach at all points of your job, but I am frustrated that this is not going more quickly."

While the sole-source provision makes no mention of tribes and technically refers to all contracts, it is directed at Alaska native corporations, which have benefitted from unique federal regulations that allow them, as well as Indian tribes and Native Hawaiian organizations, to win noncompetitive awards of any value.

In response to questions from Government Executive, an OMB official said Section 811 of the 2010 authorization act specifically refers to Alaska native corporations, Indian tribes and Native Hawaiian organizations. Lael Echo-Hawk, legislative director for the Native American Contractors Association, a Washington trade group, said the organization's members are extremely concerned about how the law will be implemented. For example, during the subcommittee hearing, McCaskill, a frequent critic of ANCs, repeatedly described the law as a "cap" on sole-source contracts -- a significantly different interpretation than requiring contracting officers to justify their use of noncompetitive contracts.

"This is not meant to be a cap," Echo-Hawk said. "There seems to be some confusion about this. We are concerned that this is going to have a significant impact on our businesses and have a chilling effect on contracting officers."

Alaska native corporations have long been a source of debate in the federal procurement sector. A 1992 law allows ANCs, along with companies owned by native Hawaiian organizations and Indian tribes, to be considered small and disadvantaged and therefore eligible to participate in the Small Business Administration's 8(a) Business Development program. Agencies are allowed to bypass competition and direct sole-source contracts to 8(a) participants of $3.5 million, or $5.5 million in the case of manufacturing contracts.

But, Alaska native corporations have no such caps and many have become highly successful using that exemption. In fiscal 2008, companies owned by Alaskan regional and tribal corporations earned $5 billion in federal contracts, nearly 10 times the $506 million they earned in fiscal 2000, according to a 2009 Government Executive analysis.

"Many [ANCs] have not been small for a long, long, long, time," McCaskill said. "They are mega, mega, multinational corporations. And the notion that some of these corporations, as large as they are, never have to compete, should be offensive to anybody in the field of acquisition."

But tribal officials suggest that such logic is shortsighted. While ANCs have been the dominant contracting player, many Indian tribes now are beginning to explore market opportunities, according to Echo-Hawk. The sole-source rule, she said, will affect 565 tribes, which have an average unemployment rate of just under 50 percent and a poverty rate near 25 percent -- compared to less than 10 percent for the rest of the country in both categories."

"Tribes are just starting to get into the market and expand," Echo-Hawk said. "And this law seems punitive to them."